Q3 2024 Virtus Investment Partners Inc Earnings Call
Good morning, My name is Judy and I will be your conference operator today I would like to welcome everyone to the furthest investment partners quarterly conference call.
The slide presentation for this call is available in the Investor Relations section of the Virtus website Www Dot farthest dot com. This call is being recorded and will be available for replay on the Virtus website.
At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer period and instructions will follow at that time.
Speaker Change: I will now turn the conference to your host Sean Rourke.
Sean Rourke: Thank you Judy and good morning, everyone on behalf of Virtus investment partners I would like to welcome you to the discussion of our operating and financial results for the third quarter of 2024.
Our speakers today are George Aylward, President and CEO, and Mike Angers, All Chief Financial Officer.
Sean Rourke: In their prepared remarks, we will have a Q&A period.
Sean Rourke: Before we begin please note the disclosures on page two of the slide presentation.
Sean Rourke: Certain matters discussed on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and as such are subject to known and unknown risks uncertainties, including but not limited to those factors set forth in today's news release and discussed in our SEC filings.
Sean Rourke: These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.
Sean Rourke: In addition to results presented on a GAAP basis, we are certain non-GAAP measures to evaluate our financial results are non-GAAP financial measures are not substitutes for GAAP financial results should be read in conjunction with the GAAP results.
Sean Rourke: Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release and financial supplement which are available on our website.
Speaker Change: Now I'd like to turn the call over to George George.
Thank you, Sean and good morning, everyone. So I'll start today with an overview of the results. We reported this morning, and then turn it over to Mike to give a little more detail.
George George: We had strong operating and financial performance in the third quarter, which included higher sequential sales in oil products continued positive net flows in retail separate accounts Etfs and global funds.
George George: Tractive long term as well as recent investment performance across strategies and.
George George: And operating margin at the highest level in two years.
George George: Increased return of capital, including our seventh consecutive annual dividend increase.
Investments in the business, including for our CLO issuance and then the equity of an affiliate and repayment of debt ending the quarter with modest net leverage and significant financial flexibility.
Well, we had overall net outflows in the quarter, we were pleased with sales growth and momentum as well as the improvement in net flows which were reflective of a more favorable market environment for our strategies.
George George: As I noted recent investment performance was strong across products with 62% of assets outperforming peers in the third quarter.
George George: That will be coming back in favor, particularly benefited our equity managers with 82% of our equity assets outperforming peers in the quarter.
George George: We continue to be active in introducing new products and offerings. We recently introduced or filed to launch several new products, including an actively managed ETF from Kayne Anderson Rudnick focus on high quality mid cap equities and in actively managed private credit CLO ETF from sites. He saw the second quarter introduction of Alpha <unk>.
George George: <unk> managed futures ETF.
George George: Turning now to a review of results.
George George: Total assets under management increased 6% to $183 7 billion due to market performance and positive net flows in retail separate accounts Etfs and global bonds.
George George: The strong contribution from market performance was favorably impacted by a meaningful exposure to small smid and mid caps, which represented 61% of equity AUM.
Sales increased 7% with growth in each product category and momentum building throughout the quarter with September having our highest level of sales since January.
George George: Net outflows of $1 7 billion improved from $2 6 billion in the prior quarter with sequential improvements in both the open end funds and institutional and again with September being the best month of flows of the quarter.
George George: For institutional net outflows of $1 1 billion improved sequentially from $1 7 billion.
George George: The net outflows were largely driven by redemptions of lower fee mandates with the average fee rate on redemptions meaningfully lower than the rate on inflows.
George George: Institutional flows also included the issuance of a new $3 billion sake CLO.
George George: <unk> was launched as leveraged loan strategy nearly 20 years ago. Now manages 10 clo's with approximately $3 4 billion in assets that generated an attractive return and meaningful cash flow.
George George: Retail separate accounts generated positive net flows of <unk> 4 billion and have delivered 5% organic growth rate over the past year with consistent positive net flows in the intermediary sold channel and in private client, which is our wealth management business. It came in it's in Red Bank.
George George: The balance at $8 7 billion of EUM.
George George: The business had $8 7 billion of a U M timber 30th and has generated over five years of positive net flows.
George George: More than doubling its assets under management over the period change.
George George: <unk> wealth management businesses ranked seventh in the Forbes top or a firm's list for 2024 and for parents top 100 independent advisors. They had rankings of third for 2024 and have been in the top 10 for 12 consecutive years.
George George: Open end fund net outflows of 1 billion improved from $1 3 billion in the second quarter, primarily due to fixed income strategies, which generated positive net flows.
George George: In terms of what we're seeing so far in October retail separate accounts global funds and Etfs continued to be positive in net flows and U S. Retail funds are tracking similarly to the third quarter.
For institutional well known redemptions for the fourth quarter currently exceed known wins the revenue impact would be essentially neutral given the redemptions would be from lower fee mandates.
George George: In terms of our financial results for the third quarter, reflecting modestly higher average AUM levels and our ongoing management of expenses.
George George: The operating margin was 34, 4% up sequentially from 32, 5% due to higher investment management fees and lower employment and other operating expenses.
George George: The operating margin reached its highest level in two years benefiting from higher revenues and the leverage ability of our business as well as the disciplined management of discretionary expenses.
George George: We have maintained other operating expenses in a consistent range, despite inflationary pressure, reflecting various initiatives, including the streamlining of investment systems and data usage that have delivered run rate cost savings.
George George: Earnings per share of adjusted of $6.92 increased 6% from the second quarter to the highest level since the first quarter of 2022.
Turning now to capital R.
George George: Our business generates a significant amount of quarterly cash flow that supports our consistent return of capital shareholders and investment in the growth of the business.
George George: The third quarter, we increased our share buyback to $15 million.
George George: As our quarterly dividend for the seventh consecutive year and made it a discretionary payment on our term loan ending the quarter with a very modest net debt position of <unk> one times EBITDA.
George George: Our solid balance sheet and cash flow generation provide flexibility continue to balance all elements of our capital management strategy.
George George: We have consistently applied a balanced approach to capital management over.
George George: Over the past five years, we've repurchased one 4 million shares for approximately $265 million, reducing the share count by 12% on a net basis and have consistently raised our quarterly dividend by double digits each year.
George George: Also invested meaningfully in the growth of the business, adding four new managers and seeding new products and strategies that have supported our AUM growth over the period and that positions us for continued growth over time with that I'll turn the call over to Mike Mike.
Mike: Thank you George good to be with you all this morning.
Mike: Starting with our results on slide seven assets under management.
Mike: Our total assets under management benefited from market appreciation during the third quarter rising 6% to $183 7 billion at September 30th primarily due to $12 6 billion a favorable market performance.
Mike: Average assets under management increased slightly to 176 billion.
Mike: With ending assets.
Mike: Four 4% above the quarter's average.
Mike: Compared with the prior year period, AUM increased 13% driven by market performance and consistent organic growth in retail separate accounts.
Mike: Global funds and Etfs.
Mike: Over the past year retail separate account AUM increased 31%.
Mike: With 5% organic growth.
Mike: Including consistent positive net flows in both the intermediary sold channel.
Mike: And in our wealth management business.
Mike: Global funds AUM increased 29% over the prior year with 7% organic growth.
And ETF AUM grew 88%.
With 65% organic growth.
Mike: We continue to have compelling long term relative investment performance across products and strategies.
As of September 30, 58%.
Mike: A rated retail fund assets and 28 funds at four or five stars.
Mike: And 90% were in three four or five star funds.
Mike: In addition, 63% of fund outperformed.
Mike: <unk> outperformed the median of their peer groups over the five year period.
Mike: And 84% of retail separate account assets have beaten benchmarks over the same five year period.
Mike: Etfs have also had strong performance with 95% of ETF assets outperforming the median of peer groups over the three year period.
Mike: Five of our 14 right at Etfs.
Mike: Rated four or five stars.
Mike: Across all products, 57% of AUM at September 30 were beating their benchmarks over the five year period.
Mike: Okay.
Mike: Turning to slide eight asset flows.
Mike: Total sales increased 7% to $6 6 billion with growth in each product category.
Mike: Compared with the prior year quarter sales increased 14%.
Mike: Institutional sales of $1 2 billion increased 3% sequentially.
Mike: It included the issuance of the new <unk> 3 billion CLO.
Retail separate account sales increased 4% to $2 3 billion due to higher sales in the intermediary sold channel.
Mike: Strong investment performance from our retail separate account strategies has generated consistently strong demand for the product.
Mike: Open end fund sales increased 12% sequentially to $3 1 billion due.
Mike: Due to fixed income and alternative strategies.
Mike: Total net outflows improved to $1 7 billion from $2 6 billion last quarter.
Mike: And net flows continued to be positive in retail separate accounts.
Mike: Yes.
Mike: Global funds.
Mike: Reviewing by product.
Mike: Institutional net outflows of $1 1 billion improved from $1 $7 billion sequentially and included the CLO issuance.
Mike: Institutional net outflows were primarily driven by two larger low fee accounts with an average fee rate of approximately eight basis points.
Mike: As always institutional flows will fluctuate depending on the timing of client actions.
Mike: Retail separate accounts continued to generate positive net flows in both the intermediary sold and wealth management channels.
Mike: Totaling <unk> 4 billion in the quarter.
Mike: Our open end funds net outflows were $1 billion.
Compared with $1 3 billion in the second quarter with.
Mike: With the improvement primarily due to fixed income strategies.
Mike: Within open end funds fixed income smid cap and.
And global equity strategies generated positive net flows.
Mike: I would also note that for fixed income in total across products.
Mike: Net flows were positive in the quarter.
Mike: Turning to slide nine investment management fees as adjusted of $185 5 million increased $1 8 million or 1%, reflecting the modest increase in average assets under management.
Mike: I had a relatively flat fee rate.
Mike: The average fee rate of $41 nine basis points compared with $42 two basis points in the prior quarter.
Mike: Excluding performance fees.
Mike: The average fee rate in the third quarter was 41 eight basis points essentially unchanged from last quarter.
Mike: Our average fee rate excluding performance fees has remained in a very narrow one basis point range over the past few years.
Mike: The resiliency of our fee rate reflects solid investment performance and.
Mike: And the differentiated nature of our products such as high conviction at high quality strategies.
Mike: As well as small caps emerging markets.
Alternatives in several fixed income strategies, such as bank loans.
Mike: Looking ahead, we believe the third quarter average fee rate is reasonable for modeling purposes.
Mike: And as always the fee rate will be impacted.
Mike: The markets and the mix of assets.
Speaker Change: Slide 10 shows the five quarter trend in employment expenses.
Speaker Change: Total employment expenses as adjusted of $102 5 million decreased 1% sequentially due to lower fixed costs.
Speaker Change: And as a percentage of revenues they were down 50%.
Speaker Change: They were 50% down 100 basis points.
Speaker Change: Looking ahead, we believe employment expenses as a percentage of revenues in a range of 49% to 51% remains reasonable.
Speaker Change: So as always it will be variable based on market performance in particular.
As well as profits and sales.
Speaker Change: Okay.
Turning to slide 11.
Speaker Change: Other operating expenses as adjusted were $29 8 million.
Down $1 $5 million or 5%, reflecting ongoing expense management.
Speaker Change: And the annual grant to the board of directors in the prior quarter.
Speaker Change: As a percentage of revenues other operating expenses declined 90 basis points sequentially.
Speaker Change: And by 80 basis points over the comparable prior year period.
Speaker Change: Other operating expenses were at the lowest level since the first quarter of 2023, even though we added the costs of the new affiliated manager during the period.
Speaker Change: As George mentioned in addition to maintaining discipline around discretionary spending we have continued to streamline our cost structure, including the consolidation of portfolio management support systems.
Speaker Change: Yes.
Speaker Change: Looking ahead, the third quarter level of other operating expenses as adjusted is.
Speaker Change: Is reasonable for modeling purposes, all else being equal.
Slide 12 illustrates the trend in earnings.
Speaker Change: Operating income as adjusted of $70 5 million increased $4 5 million or 7% sequentially.
Speaker Change: Primarily due to higher average assets under management and lower operating expenses.
Speaker Change: The operating margin as adjusted of 34, 4% increased from 32, 5% in the second quarter and reached the highest level since the third quarter of 2022.
Speaker Change: On a year to date basis, the operating margin increased 60 basis points over the prior year period.
With respect to non operating items interest and dividend income decreased by $1 8 million, primarily reflecting the prior quarter impact of elevated interest income on our CLO, we issued last year.
Speaker Change: For modeling purposes, and average of the past two quarters of interest and dividend income is reasonable.
Speaker Change: Noncontrolling interests, which reflect affiliate minority interests.
Speaker Change: Were lower sequentially by <unk> 4 million, primarily due to the increase in our ownership of affiliate during the quarter.
Net income as adjusted of $6 92 per diluted share increase.
Speaker Change: Increased from $6 53 in the second quarter.
Speaker Change: On a year to date basis diluted earnings per share increased 19% over the prior year period.
Speaker Change: In terms of GAAP results net income per share of $5 71 increased from $2 43 per share in the second quarter and included 64 cents of expense related to the increase in fair value of a minority interest.
Speaker Change: Yes.
Speaker Change: And 10 of acquisition and integration costs.
Partially offset by 41 of fair value adjustments to contingent consideration.
Speaker Change: Slide 13 shows the trend of our capital liquidity and select balance sheet items.
Working capital was $108 5 million at September 30.
Speaker Change: Down sequentially from $143 million.
Speaker Change: As cash generated was more than offset.
Speaker Change: By the equity investment in an affiliated manager.
Speaker Change: Return of capital to shareholders.
Speaker Change: Sponsorship of the new CLO and a debt repayment.
Speaker Change: Cash and equivalents increased sequentially to $195 5 million from 183 million at June 30.
Speaker Change: During the third quarter, we repurchased 72850 shares of common stock for $14 9 million.
Speaker Change: We also made a $10 $7 million payment on our term loan.
Speaker Change: Yes.
Speaker Change: At September 30, <unk> gross debt to EBITDA was <unk> eight times.
Speaker Change: And net debt at September 30 was $46 million or.
Speaker Change: <unk> one times EBITDA.
Speaker Change: We generated $84 million of EBITDA in the third quarter.
Speaker Change: Up 2% sequentially due to higher average AUM and lower operating expenses.
Speaker Change: And up 3% from the prior year level.
Speaker Change: Other uses of capital during the quarter included $24 4 million the.
Speaker Change: A sponsor of the new CLO as well as $28 6 million.
Speaker Change: Planned increase in equity of our majority owned affiliate.
Speaker Change: We have adequate levels of working capital and modest leverage providing meaningful financial flexibility to continue to invest in the business.
Speaker Change: Return capital and repay debt and with that let me turn the call back over to George George. Thank you. Mike. So we will now take your questions DB would you open up the lines. Please. Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw.
Speaker Change: Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: And our first question comes from Christian <unk> of Piper Sandler Your line is open.
Speaker Change: Thank you and good morning, everyone Hope you're well first can you just give a little bit more detail on what youre seeing in the fourth quarter as it pertains to flows I know, it's early but you did mention that you had the highest level of sales in September for the third quarter.
Speaker Change: And was partly driven by some of the market first we saw kind of burst one how does that compare to October and then just how are the trends running relative to third quarter for sales net flows and are there any significant part that you expect in the last two months of the year that are worth calling out.
Speaker Change: Yes, well on the last piece the last two months of the year.
Speaker Change: In general Ken can have a lot of volatility you have tax considerations.
Speaker Change: And we're in a cycle with a with an election, so it will be hard for.
Speaker Change: It's hard to be comfortable what November and December will look like it could be a lot of volatility either positive or negative for a lot of reasons. So I'll kind of put that on the side. So in terms of what we've seen in October versus September. So as we indicated continue to see that continued positive flows in the retail separately and the Etfs and the <unk>.
Speaker Change: Global funds were pleased to see with that.
Speaker Change: <unk> business, which you know.
Speaker Change: We had launched products over the years to build track records and it's really very good to see some of the flow starting to come into some of those products as they've reached.
Speaker Change: A three year Mark in terms of their performance et cetera. So we're we're very pleased to see that kind of business.
Speaker Change: On the fund side again, we had an interesting market of the year with momentum, leaving the markets earlier in the year and large caps, we're happy in the third quarter to have a little bit of an inflection back.
Speaker Change: Two.
Speaker Change: The quality managers, which again, we're generally on the equity side overweight on the quality side. So a lot of our management performed really well.
Speaker Change: The real question is is the risk appetite of investors and currently what they're seeing so we've been very happy with fixed income and as we noted across all products. We've been seeing positive flows in fixed income I think we expect to continue to see that in the October and then subject to what else happened. There. So we feel good about how that's positioned.
Speaker Change: But again there are a lot of factors at the end of the year that could have implications either negatively or positively.
Speaker Change: Thanks George.
George George: Definitely I appreciate that there could be a lot of volatility in that.
Speaker Change: Coming weeks in coming months for for the election, but second question from me just on adjusted other Opex came in below your prior 30 32 million Guide I'm.
George George: I'm just curious if you can take a little bit deeper there.
Speaker Change: Mike based on your comments seems like the run rate for the fourth quarter should be about that $30 million level.
George George: Do you think that $30 million level makes sense.
Speaker Change: For the next several quarters as we can.
Speaker Change: Moving to our 25 or and also is there any more room for cost remaining in that line. Thank you.
Speaker Change: Yes, I mean quick response, then Mike will go through in detail. So as we've as we've tried to communicate it on that line that line has had a lot of cost increases and inflationary pressure over the last few years.
Speaker Change: And as <unk> seen our number has been actually very stable.
Speaker Change: And to your point now actually tipping down a little bit so really what <unk> been seeing is a net of two things it's the.
Speaker Change: The increase in costs for many of the service providers that are as common in our industry.
Speaker Change: Simultaneously the plans and the actions we've had in place to try to do some optimizing and rationalizations of costs are you seeing the net of those.
Speaker Change: In terms of the flatness of that line Mike.
Speaker Change: And Kristen I appreciate the commentary, we certainly think the level. This quarter is appropriate for modeling purposes looking ahead as George alluded to.
Speaker Change: We do have inflationary considerations as we look further out but certainly for the short run some of the actions that we've been talking about over quarters now around.
Speaker Change: Streamlining of.
Speaker Change: Investment support systems and data feeds and providers.
Speaker Change: Have have.
Speaker Change: They have really taken taken hold in the result, so reducing the number of data feeds consolidating systems.
Speaker Change: Is having a positive impact. So we think this is appropriate for modeling we'll update that outlook further on if we see anything different.
Speaker Change: Further out.
Speaker Change: Great. Thank you both I appreciate you taking my questions.
Speaker Change: Thank you.
Our next question comes from Michael Cyprus of Morgan Stanley. Your line is open.
Speaker Change: Hi, This is Anthony Davis on for Mike Cyprus.
<unk> is on how you guys are thinking about an organic growth.
Speaker Change: Just wondering any color you guys can share on M&A conversations you've been having.
Speaker Change: And then what are you guys evaluating when you're considering an opportunity. Thanks.
Sure. So on the first part on the organic growth we continue to see the best organic growth opportunities currently where we have been seeing them, which is in the retail separate accounts Etfs and the global funds. We think those are particularly strong opportunities for us and all of those categories.
Speaker Change: That broader product category is growing.
Speaker Change: Open end funds.
Speaker Change: In the industry are having their challenges, particularly on the active side.
Speaker Change: So that I would put it in a different area. We continue to see a lot of opportunity on the institutional side very lumpy and it's very impacted by institutional investors, making different repositioning.
Speaker Change: Decisions quarter to quarter. So we expect that to continue to be lumpy, but we do believe based upon the breadth of the pipeline, which is really just sort of indicative of we're having conversations and where we're making presentations, we do feel good about that and what that opt.
Speaker Change: Attunity said is for us, particularly outside the U S, which we continue to see as a higher value opportunity for us for organic growth.
Speaker Change: On the M&A.
Speaker Change: As we've said before.
Speaker Change: For us it's critical that we do not require M&A for growth and that we have an organic growth strategy, but for M&A strategy. We continue to look at ways to add additional capabilities that are not currently within the family of managers that we have the recent ones have been focused in on the more.
Speaker Change: Less correlated parts of the markets in terms of the offer simplex in the Westchester transaction, we continue to see that as the area of interest since we're well represented across the traditional asset classes.
Speaker Change: In private markets in particular like everyone. We continue to see that as a great opportunity set that is an area, where we are spending time.
Speaker Change: And we ultimately believe that.
Speaker Change: Spanning our offerings to include those types of offerings, possibly even in combination with public securities.
Speaker Change: <unk> is an opportunity that we're focused in on.
Great. Thanks, and then maybe just another one on capital allocation.
Speaker Change: How much do you guys anticipate allocating and how do you see the Super today, and then just wondering if theres any more opportunity to introduce additional new products.
Speaker Change: On the last piece on the on the new products, we absolutely continue to see opportunities and we have a lot of things that are currently under development much of the activity recently over the last year or two has been really focused in on the Etfs and the global funds.
Speaker Change: As well as certain strategies available in cities for.
Speaker Change: Markets that prefer that type of a vehicle for that.
Speaker Change: So we have a very active agenda of items.
Speaker Change: And things that we'll be putting in for filings in those areas and again correlated to where we see the growth rates of most of our product development activity is on the retail separates it's on the Etfs is on the global funds.
Speaker Change: So we will continue to do that where we're kind of well represented.
Speaker Change: And in the open end funds, we have a pretty broad representation.
Speaker Change: Okay.
Speaker Change: Catherine Thank you.
Catherine: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Bill Katz of TB Cowen. Your line is now open.
Bill Katz: Thank you very much good morning, everybody I. Appreciate you taking the questions I was wondering if you could expand a little bit on the affiliate.
Bill Katz: A step up in the quarter when did it happen how should we think about the residual impact maybe to NCI.
Bill Katz: And.
Bill Katz: I don't know if you wanted to talk about which affiliate it is but how do you think about the pipeline for other opportunities to sort of deepen your ownership of your existing footprint.
Bill Katz: And maybe what multiple where we should be thinking about you are paying on that incremental equity. Thank you.
Speaker Change: I'll just do a brief intro to that Mike can go through it. So most of our affiliates are actually wholly owned we do only have.
Speaker Change: One that's majority owned and we have a minority interest in another so Mike will go through that so I would really look at that as.
The descriptions that Mike's going give related to the predetermined structural changes that we made in that transaction really only relate to one.
Speaker Change: Yeah.
Bill good morning.
Mike: The the affiliates that George alluded to we came on in 2018 and as part of the original transaction structure.
Mike: We have had.
Increases in power for charity ownership in each of the last this will be the third year.
Mike: Of our four year sequence, where as part of the original structure, we increased our ownership and will conclude in these staged equity purchases as we created them at the onset.
Mike: Next year.
Mike: In a similar timing in the third quarter. So ownership did increase to approximately 80% in this quarter, which is what.
Mike: Impacted the change in the NCI as you noted.
Mike: It did happen in the midst of the quarter. So you could expect all else being equal because it will be impacted by the operating results of <unk>.
Mike: That entity.
Mike: But all else being equal you could expect the NCI balanced that ticked down modestly in.
Mike: In the quarter next year and.
Mike: That would be sort of the state based on our ownership for that result.
Speaker Change: Okay. That's super helpful. I didn't recall that as you saw are chatting sorry waste a question.
Speaker Change: Maybe stepping back just following up on some of the M&A discussion there has been a ton of transactions, both large and small over the last many quarters as the shelf space. The arms race wherever you want to call it to sort of either get retail democratization or get access to some of the faster growth areas like you mentioned.
Speaker Change: In terms of private markets does this change the urgency or the sort of the financial discipline.
Speaker Change: Or maybe framework, maybe a better way to think about it of how you're thinking about incremental growth because it's nice to see the flows getting a little bit better, but you're still sort of grinding along and modestly negative with puts and takes from your updates. So how do you really break into some of the really fast growth areas here economically.
Speaker Change: Yes, so I think for traditional managers again, the right now currently the experience and the opportunity set on traditional managers is different than the alternatives in the private markets, which have gone through a cycle of really strong attractiveness.
Speaker Change: For those of us who've been around for a really long time it used to be the opposite.
Speaker Change: Terms of the privates, having more of the volatility in the traditional so I do think there continues to be the opportunity for the convergence of those two and I think thats why there are a lot of firms.
Speaker Change: They are having conversations or looking to do transactions in terms of trying to two two to bring the publics and privates closer together in terms of offerings to clients, so, allowing using the democratization of of private market alternatives into the retail space. So I think there are a lot of.
Speaker Change: Conversations that are going around in that space I think we do it.
Speaker Change: As well as much as anyone else is currently doing that I think really there is a diversified set of offerings that every client needs needing so I think those of us like us who offer multiple strategies are continuing to look to sort of build out those various sets of offerings.
Speaker Change: Can I squeeze one more in.
Speaker Change: Yeah sure. Okay. Thank you sorry to belabor separate topic promise on the institutional pipeline, you mentioned that the known outflows a little bit better than the known inflows a little bit.
Speaker Change: Can you talk a little bit about what's been the gating issue here for a better flow outlook institutional is it it doesn't sound like it's performance is it product breadth is it reallocations.
Speaker Change: What seems to be some of the underlying sort of any kind of commonality or headwinds just sort of getting that business back into positive territory. Thank you.
Speaker Change: Yeah, no. It's a great question.
Part of it has been the reallocation of the positioning of clients right. So there have been instances, where you've heard us referring to some of the.
Speaker Change: The outflows because most of our outflows have not actually been account or mandate terminations, they've generally been rebalancing or paring back right. So in for certain of our equity strategies. If you sort of think through it if they blow through the target allocation due to either strong performance in the markets from the manager.
Speaker Change: Sure.
Speaker Change: We will be a rebalancing so as we kind of look at that it's frustrating and a little bit because the outflows. We're seeing are not generally driven by the termination of mandates they're usually by to your comment to the reallocations in the positioning so I think like a lot of managers, we really do have to do.
Speaker Change: To meet the needs of institutional clients as they continue to manage their overall asset allocation and finding out where we can fit in that allocation. So we have seen some of those.
Speaker Change: Outflows driven by the allocation or the down ticking of an equity allocation.
Speaker Change: We're hopeful that a lot of our fixed income and our other non correlated offerings will then take up some of that but it's a longer tailed business and I think theres a lot of institutional clients that have probably been spending more time on on rebalancing their their equity their their allocations as opposed to.
Speaker Change: To bringing in new things, but our pipeline is quite strong I mean, when we look at where we're either in dialogue or in processes or in finals. It continues to be a cross managers across strategies and across geographies, but now it's a very competitive space. So it takes a lot to be ultimately successful.
Speaker Change: Okay. Thank you for taking all my questions. This morning.
Speaker Change: No problem. Thank you.
Speaker Change: You.
Speaker Change: Our next question comes from Ben Buddhist of Barclays. Your line is open.
Speaker Change: Hi, good morning, and thanks for taking the question maybe first I just wanted to ask on the ETF side, maybe a two part or I guess what are your thoughts on the product pipeline for 2025.
Speaker Change: And then I think and then not too long ago, you kind of commented that some of.
Speaker Change: Your Etfs were not available to all of your intermediaries. So just curious if the distribution is now kind of fully baked. It just seems like there's a lot of momentum there curious how much could.
Could be either continued from an expansion of distribution and then thoughts on the new product side.
Speaker Change: Yeah, No. We're really excited on the new product side. So again, we referenced a few of the recent offerings as well as the filings that we've had which covered three of our managers.
Speaker Change: We actively managed Etfs are increasingly becoming a more and more part of the book of business have a lot of financial advisors. So.
Speaker Change: The.
Speaker Change: Previous growth that had really been more in the passive space.
Speaker Change: Space, where a lot of assets have been raised we see increasing interest on the actively managed side, particularly originally on the fixed income, which is where we launched several funds not this year, but last year in the fixed income space. Some of them have now accumulated a low enough track record that we're actually starting to see some inflows.
Speaker Change: Like our AR that's his.
Speaker Change: Sites are leveraged loan ETF, we're very happy to see that that's getting some of the flows that currently deserves and as.
Speaker Change: As we indicated we did an ETF for Alpha simplex were doing one for for sites in.
Speaker Change: In the CLO space, the private credit space and then.
Speaker Change: Kane, which has an incredible strength in the mid cap space will now have an offering in the ETF. So we think that is really just meeting a need that an increasing number of Fas are just preferring to use the ETF vehicle as part of their portfolio. So we will continue along that vein looking for those things that we can do we're also look.
Speaker Change: King.
Speaker Change: In terms of more solution oriented products, where we can take the building blocks of either our individual Etfs and also provide them in the form of an ETF managed model portfolio. So we have a lot of things in those areas that we think ultimately can be.
Speaker Change: Very attractive in terms of availability part of the availability does.
Speaker Change: Related to the size of the Etfs. So some of the Etfs. If they are at a certain size may not have the access that we want them to know that they are actually starting to grow and gathered assets that does then increase the availability of that so our hope is as the funds build those track records have gained those assets.
Speaker Change: We are already seeing continued growth.
Speaker Change: As of yesterday the day before we were probably just shy of $3 billion to eight.
Speaker Change: Or somewhere around there continue to see good opportunity for that and it's a great fit with the diversity of our offerings on the open end side, where the openings are a little out of favor in terms of structure and we see a lot more interest on the ETF side.
Speaker Change: Got it very helpful. Maybe one separate question kind of coming back to capital allocation.
Speaker Change: You announced another pretty healthy dividend increase not too long ago. So just curious how youre thinking about what that looks like over the next several years. It looks like the sort of the payout rate versus five six years ago has really picked up from like a teens level to a low <unk> level. So as time goes on are you thinking about more you know at what point do you become a little bit more constrained by your overall EPS growth.
Speaker Change: Are you thinking about you know how are you thinking about this in terms of your payout ratio or providing investors with steady dividend increases how do you kind of think about balancing those as the payout ratio has increased over the last several years.
Speaker Change: Yes, no absolutely both of those need to be balanced I think we have we do believe and we've said philosophically we do think.
Speaker Change: That having investors have an expectation that we do value continued expectations of growth in the dividend is part of how we do want to approach that so we think that is something that from a strategy perspective. We think is an important part of that the absolute level of that increase again, we will.
Speaker Change: Also be evaluated against other alternatives right. We have generally done our increases probably in the double digit range or above that but it will always be balanced.
Speaker Change: As we do with.
Speaker Change: Our level of stock buybacks or other activities that we're doing but we have had seven years of annual dividend increases and we do think that that is an underlying element of our strategy, Mike anything you'd add to that.
Speaker Change: No I think you've covered it.
Speaker Change: Okay, great well, thank you for taking my questions.
Absolutely. Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would now like to turn the conference back over to Mr. Aylward.
Great. Thank you so much and I want to thank everyone today for joining us and as always if you have any other questions. Please feel free to reach out and have a great day. Thank you.
Speaker Change: That concludes today's call. Thank you for participating and you may now disconnect.
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